SHANA – The severance of diplomatic ties between Qatar and a Saudi-led alliance of Arab governments has given rise to the worst diplomatic crisis in the Arab world since the establishment of Gulf Cooperation Council (GCC) in 1981.
The tension between the Persian Gulf Arab states has engulfed the entire region. In addition to leading some other countries to cut ties with Qatar, the economic sector has been affected. Ever since Saudi Arabia, Bahrain and the United Arab Emirates (UAE) closed their sea and land borders and airspace to Qatar, stocks started tumbling in the Doha stock market. Furthermore, fear for an escalation of the crisis has resulted in the shortage of stocks in some stores. Of course, the impact of the political crisis in the Persian Gulf Arab world was not limited to the countries involved. World energy market also reacted. Qatar is not an influential country in crude oil market, but it is among the largest exporters of natural and liquefied gas. Therefore, future developments in Qatar’s relations with Saudi Arabia and its allies could largely affect the global energy markets.
Aspects of Crisis
Over recent years, having relied on windfall oil and gas wealth, as well as media propaganda campaign, Qatar has sought to become an influential element in the Middle East developments.
Qatar has pushed its foreign policy through, via its big wealth, causing dissatisfaction among its Arab neighbors. Some of them are Doha’s support for Egypt’s Muslim Brotherhood, Palestinian resistance movement Hamas in the Gaza Strip as well as armed groups opposed to the policies of Saudi Arabia and UAE in Libya and Syria. Qatar-funded Al Jazeera television is financed by gas sales. This network has on many occasions triggered the wrath of Arab governments in the Middle East region.
Qatar’s conflict of interests with Saudi Arabia has caused serious discrepancies between the two governments. This conflict is rooted in both attitude and energy.
As far as attitude and ideology are concerned, the Qataris favor the Muslim Brotherhood while the Saudis have been promoting and supporting Wahhabism and Takfirism all across the region. Riyadh and Doha have also been locked in a tough rivalry in the energy sector. The Saudis have never liked to recognize Qatar as one of the most important exporters of gas. The crisis between Qatar and a Saudi-alliance of Arab governments started after Qatar’s Emir, Sheikh Tamim bin Hamad al-Thani, was quoted as uttering rhetoric criticizing Riyadh’s regional policies. The remarks were immediately denied by Qatar officials, but the Saudis and their mouthpieces accepted them as true and fired a broadside against the Qatari officials. The row between the two sides was embittered particularly after a taped file was distributed in which Qatar’s former Emir Hamad bin Khalifa al-Thani acknowledges his country’s support for the groups whom Saudi Arabia views as rebel.
Egypt, UAE and Bahrain joined Saudi Arabia in breaking up their diplomatic ties with Qatar. Libya followed suit. That was aimed at pressuring the Doha leaders to accept conditions laid out by the Saudi regime. The conditions set by Riyadh indicate the inflexible and irreconcilable approach pursued by the younger generation of the House of Saud. Even under this new generation, nobody could expect wisdom and foresight.
Ports in Saudi Arabia and the UAE barred ships flying Qatari flags. The Saudi Ports Authority notified shipping agents not to accept vessels flying Qatari flags or ships owned by Qatari companies or individuals, it said, adding that Qatari goods would not be allowed to be unloaded in Saudi ports.
“Vessels flying the flag of Qatar or vessels destined to or arriving from Qatar ports are not allowed to call on the Port of Fujairah or Fujairah Offshore Anchorage regardless of the nature of their call until further notice,” authorities in Fujairah, an emirate in the UAE and regional bunkering hub, said in a notice.
OPEC member Qatar, the world’s top seller of liquefied natural gas (LNG), produces around 600,000 barrels of crude oil per day and is not a big crude exporter.
But it is a major exporter of condensate, an ultra-light form of crude oil, as well as liquefied petroleum gas (LPG), with most supplies of the two fuels going to Japan and South Korea under long-term supply contracts.
The shipping ban will make the logistics of buying Qatari crude and condensate much harder.
Impact on Energy Market
Amidst worsening row among the Persian Gulf Arab countries, some experts forecast oil prices to go beyond $55 a barrel. But their predictions turned out to come untrue. In reaction to the Qatar crisis, world markets were shocked and oil prices rallied slightly; however, they fell again due to lack of confidence in the future and uncertainty over the face of an OPEC output cuts deal.
Nonetheless, this question still stands to know if oil prices would increase in case the row between Qatar and the Saudi-led coalition lingers on.
In order to respond to this question, several issues must be taken into consideration:
- With a per capita income of $130,000 a year, Qatar is the world’s richest country and largest producer of LNG. But with an oil output of 620,000 b/d, it is among the smallest member states of the Organization of the Petroleum Exporting Countries. That shows that Qatar is not a key figure in oil production and even if it pulls out of the output cuts deal no important changes will transpire the world markets. Furthermore, besides Saudi Arabia are Iran and Russia involved in the deal and Qatar has no intention of damaging its relations with these two countries and its fellow OPEC member states. Qatar is well aware that oil prices will fall immediately after it quits the deal and it will not augur well for the Qatari economy which is currently besieged. Even Qatar’s oil production halt could not significantly affect the market because Saudi Arabia will not hesitate to compensate for any void left by Qatar. In that case, Qatar will need months to regain its standing in the market. Therefore, Qatar would not be willing to leave the deal or stop supplying oil on the market and it continues to remain dependent on stability in the energy market.
- This is not the first time that the Persian Gulf region, which is the resource-richest energy in the world, is engulfed in a crisis. Moreover, OPEC oil producers have experienced political infighting on many occasions. Therefore, regardless of until when the political crisis between Qatar and Arab governments will end, the issue of economy and energy revenues are important for producing countries. In the past, wars and conflicts have never left any serious impact on the flow of oil and OPEC agreements. Therefore, oil producers are trying their best to make a distinction between political tensions and oil policy. If not, they will be harmed.
- Tensions among the Persian Gulf littoral states will not bring a halt to oil supply in the region. The possibility of an all-out war between Qatar and other Arab governments that would disrupt oil exports from the Persian Gulf and affect the market stands very low.
- The most significant harm that is likely to be inflicted on the energy market due to the Qatar crisis would be a possible halt in its natural gas supply to Asian nations like India, South Korea and Japan – the three large buyers of Qatar’s gas. For the time being, Qatar’s gas activities are unlikely to affect gas prices because agreements for gas sales are signed for the long term; therefore, periodic and short-term crisis could not affect them.
Last but not least, a deep energy crisis could happen only if the flow of oil and gas from the Persian Gulf region is disrupted. In case the Qatar-Saudi row affects the OPEC output deal, oil prices would be likely to fall in the near future. For the moment, no significant event is in the offing.